Choosing a Broker

A broker or brokerage firm is needed if you choose to invest in individual stocks or exchange-traded funds. There are many brokerages from which to choose. It is important to consider what you need from your broker to determine which one to choose.

Brokerages range from discount to full-service. The main differences between the two types are service style and cost. Full-service brokers will visit one-on-one with their customers. Clients with large investments will get their own broker. Smaller clients may end up with a different broker for different trades. Full-service brokers will recommend stocks and other products to their clients. They will explain your portfolio and statements to you. All this personal service comes with high costs. Full-service brokers work on commissions for the products they sell.

Discount brokers charge far less to execute trades. You will be required to pick and choose your own stocks and trade them through an online account. Discount brokerages vary in the services they offer. Most offer some form of research information on their sites. They will not recommend any one stock to you, but you have access to information to do your own research.

Your choice of broker will depend on your personal circumstances and preferences. Keep in mind that with all the free research sites on the web an online brokerage can be very beneficial and cost-effective to you. Online brokerage websites are very easy to use. Whichever broker you choose, there are some things to consider before opening an account.

Do you have the required minimum to invest? The brokerages set a minimum amount of money you must have to open an account. This can vary from brokerage to brokerage. Some are as low as $500 while others can be in the $1000s. Make sure you have the money before opening an account.

Do you have a bank account to link funds? Online brokers do most of their transactions electronically. A check is usually required when first opening an account and then subsequent transfers can be electronic.

Does the broker offer the kinds of trades in which you wish to deal. Not all brokers offer every type of trade. Also, brokers will require higher minimums for margin accounts or frequent trading. Frequent trading is not advisable, but it pays to know what trades are available.

Be prepared to offer proof of identity. Brokers are required to confirm your identity due to the war on terrorism. This provides security to your account as well.

Choosing a broker is fairly easy. Check out a few before you commit to one to make sure it offers what you want. Don't forget to check for maintenance fees and other additional fees. A good broker can make your investing experience go smoothly.